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USPS News: Press Releases
FOR IMMEDIATE RELEASE
September 11, 2001
Release No. 01-078
POSTAL SERVICE PROPOSES CHANGE IN POSTAGE RATES
Aggressive Cost Cutting Results In Lower Than Projected Request
Aggressive Cost Cutting Results In Lower Than Projected Request
WASHINGTON, D.C. - The Board of Governors of the Postal Service said today they will propose a three-cent increase in the price of a First-Class stamp as part of an overall rate increase request, which is less than 9 percent. The request will be formally submitted to the Postal Rate Commission later this month and is well below initial predictions of 10 to15 percent. For the past 30 years, the price of stamps have tracked the Consumer Price Index.
The Postal Service's mail volume growth is hurting from the volatility of the economy and despite management's aggressive cost-cutting, the fact remains that in the near future the cost of maintaining this vital public service will exceed postal revenues. The Board is requesting an expedited decision because of Postal Service finances, economic trends and mail volume growth.
"This was a very difficult decision," said Robert F. Rider, Chairman of the Postal Service's Board of Governors. "But we simply don't have the basic tools necessary to operate in a modern business-like manner." The Board stated that raising rates was necessary to protect the ever expanding universal delivery system. "We will continue to manage this institution with the 30-year-old laws that govern us, but it's like trying to listen to a CD on an 8-track player."
The Postal Service, which will end its fiscal year on September 30, 2001, is projecting a deficit in the range of $1.65 billion due to a slowdown in the economy and high labor, fuel, and health care costs. Pressure continues as the Postal Service begins arbitration with three of the four largest unions. In addition, costs continue to grow as some 1.7 million new addresses are added annually, which represent significant infrastructure cost.
Given the current economic slowdown and subsequent reductions of revenue, the Postal Service management team initiated actions to further cut costs. A $1 billion capital spending freeze has stopped construction and renovation on more than 800 postal projects, which will continue into next year.
Rider said that even with the further cost cutting measures, the Postal Service has maintained record service performance and high levels of customer satisfaction. For a record nine straight quarters, the Postal Service has achieved productivity gains.
Postmaster General John E. Potter explained that from 2001 to 2003 another $2.5 billion in costs are being taken out of the system and that further study of consolidating mail processing operations would continue. In the past two years, 21,000 positions have been taken out of the system, while another 13,000 workyear reduction is planned for this year.
Potter recently announced an organizational restructuring that will bring added focus to the Postal Service's core business. It includes reducing administrative costs, reorganizing the marketing and sales organization and reviewing e-commerce activities that are not tied to the mail.
The ratemaking process requires the Board to request a recommended decision from the independent Postal Rate Commission (PRC), which then holds public hearings on the proposal. During these hearings, any interested party, including Postal Service competitors, have the opportunity to present arguments presenting information from their perspectives. Following the review process, the PRC makes a recommended decision back to the Board, who then ultimately take action on rates.
For 226 years, the U.S. Postal Service has been the gateway to the household, binding friends, families, and neighbors together. It is an independent agency that handles 46 percent of the world's mail volume, with annual revenues exceeding $66 billion. The Postal Service received no taxpayer dollars, but derives its revenues solely from the sale of postal products and services. Its unrivaled service network means the Postal Service delivers money, messages and merchandise to 135 million addresses every day with one of the most affordable postage rates in the world.
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REMARKS OF
POSTMASTER GENERAL/CEO JOHN E. POTTER
UNITED STATES POSTAL SERVICE
SEPTEMBER 11, 2001
UNITED STATES POSTAL SERVICE
SEPTEMBER 11, 2001
Good morning Mr. Chairman, Governors: I'd like to take this opportunity to provide you a report on my first 100 days.
The Postal Service has a proud tradition of serving the American public, with more than a trillion dollars worth of business transacted every year through the mail. Since 1984 we have operated without tax dollars while covering our operating expenses from fees for services.
As you know, we are a government organization mandated to operate like a business. As a business, the Postal Service is subject to changes in the economy. Of late, like other businesses, we have seen costs rise significantly for things such as energy and health benefits while revenue and volume have lagged projections. As a result, we have been taking action to lower its costs. In fiscal year 2001 we took more than $1.3 billion worth of costs out of our system.
In plain terms, we maintained strong service, saw high customer satisfaction, grew volume by over a billion pieces, added over 1.6 million new addresses, absorbed the Priority Mail work which had been contracted out and did all that using over 23 million fewer hours - the equivalent of 12,000 employees.
I am proud of the efforts of our people.
However, despite this strong record of performance, we need to do even better. Recent economic reports are cause for concern about mail volume projections. This, coupled with a 2001 forecast of a deficit in the range of $1.6 billion, necessitates further adjustments in our resource usage.
Unfortunately, our financial position necessitates that the capital spending freeze for new facilities continue through fiscal year 2002. In addition, last Friday I announced the most sweeping management changes in nearly 10 years to better focus the organization, prioritize program expenditures, and drive performance.
For change to be meaningful, it has to start at the top. We reduced the number of officers in the Postal Service by 20 percent. We streamlined the organization to increase accountability, to eliminate redundancy, and to focus on those vital few actions that will produce short-term results. Along with a number of other changes, we will eliminate over 800 positions in the Headquarters organization. The most visible change our customers will see is in our Marketing and Sales areas. We have re-established the Chief Marketing Officer position. Anita Bizzotto as chief marketing officer will bring new energy and new ideas to our customers and to our field managers. This frees Deputy Postmaster General John Nolan to work on corporate strategic activities.
The majority of the Sales staff -- over 1,200 people -- will move from the Headquarters organization to area and district staffs in the field. There will be one product vice president with responsibility for all postal products including packages and e-Commerce.
Regarding our regional management structure, we have reduced the number and size of our Area management organizations. Responsibility for post offices in the Mid-Atlantic and Mid-West areas will be assumed by adjoining areas. In the eight remaining areas, we will accelerate efforts already under way to achieve a 30 percent reduction in staffing levels.
Learning from postal history, I made the decision not to disrupt all three levels of the organization, to assure that we continue the positive cost management of the past two years, while protecting service performance.
While no immediate changes will be made to the grassroots field structure, district and plant managers have been tasked to reduce administrative staffing levels by 10 percent within the next 12 months. This represents another reduction of more than 2,000 positions. In addition, over 500 supervisory positions will be eliminated in targeted facilities across the country.
In fiscal year 2002, field organizations have been budgeted to serve 1.7 million new addresses with 26 million fewer work hours, the equivalent of more than 13,000 fewer people.
As part of our new organization structure, Pat Donahoe will become chief operating officer and John Rapp will become senior vice president, Operations. In addition, a new operations structure will join the plant and distribution functions under one vice president. This will ensure that both sides of the operational house are pulling in the same direction for resources and talent. And I am also merging Delivery and Retail. This puts one functional leader in charge of activities in our field post offices.
The operations changes will help us work closer with our commercial and consumer customers.
We will continue to focus on improving service. One operational change that occurred late last month will have a positive performance outcome: the FedEx network.
It's operating smoothly, and we are already seeing increasing service scores after just two weeks on our Express, Priority and First-Class Mail. As we continue to make adjustments to the distribution, transportation and delivery networks linked to our new air transportation provider, our Express Mail customers will have access to a larger network of destination cities and Express, Priority and First-Class customers will experience great service.
The lack of a service measurement system for commercial First-Class Mail, advertising mail, and periodicals has been a joint concern of the mailing industry and management. Next month, the CONFIRM program will move from the test mode into the production mode. The CONFIRM program enables customers to track their mail through postal operations using barcodes on the mail which are read passively by USPS automated equipment. In addition, the production program will include time of deposit information supplied by the mailer. This additional information will start the clock so that service time can be measured. Service problems will be more easily identified and operational adjustments made to get mail delivered consistently on time.
There are many adjustments to our networks, processes and organizational structure under consideration to improve service and bring costs down. The efforts I announced last week are the first steps in a continuing effort.
For example, studies of plant operations around the country are being finalized. We expect to announce the consolidation of whole plants or tours in mid-October to be effective in January.
Along with many, I continue to be concerned about our ability to be successful in the future unless we gain increase management flexibility to react to the new economy. In that regard, we are working with all our stakeholders on reform of the legislation that governs how we operate. We have engaged our stakeholders and are working closely with GAO in the development of a transformation plan.
An initial draft outlining the many areas of consideration will be forthcoming at the end of this month. It is my belief that now is the time to act.
Let me close by thanking our employees for their efforts to serve the American public. They are stepping up to the challenges that face us, and I know their efforts will continue. It is just as important to thank all of our customers for their support and help in making the changes necessary to make the Postal Service more effective. Their actions, their concern, their unyielding support are constant reminders that this is America's Postal Service. We, the caretakers of this great institution are committed to serving the American public.
Thank you, Governors, for your support. This concludes my remarks.
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REMARKS OF ROBERT F. RIDER
CHAIRMAN BOARD OF GOVERNORS
UNITED STATES POSTAL SERVICE
SEPTEMBER 11, 2001
CHAIRMAN BOARD OF GOVERNORS
UNITED STATES POSTAL SERVICE
SEPTEMBER 11, 2001
Fellow governors, Postmaster General Potter, Deputy Postmaster General Nolan, good morning.
I listened closely to the Postmaster General's thoughtful remarks and I believe he was right on the mark. The United States Postal Service is far more than simply a provider of delivery services. It is an integral part of the daily life of our nation. Through both its services and its presence in tens of thousands of communities, it is one of the most significant unifiers of a great and diverse nation.
Unfortunately, the United States Postal Service is also operating from a very difficult position. Economic downturns, new communication options, the costs of maintaining a large and necessary infrastructure to support its universal service requirement, and an antiquated legislative charter that severely limits the organization's ability to respond quickly to market changes, place extreme pressures on our bottom line.
The Governors of the Postal Service have looked at these factors and weighed them against the Postal Service's primary role as a public service funded by revenue from the sale of postal products and services - not by tax dollars. Our review of these issues has left us extremely concerned about the Postal Service's finances.
The numbers are extremely sobering. We are in the final month before we close the fiscal year 2001 books. Management's forecast is for a second consecutive year of net losses, in the range of $1.65 billion.
While management of the Postal Service has taken aggressive and effective actions to cut costs, the simple fact is that there remains a gap between rapidly rising costs and slowing revenue growth. The Postal Service has been focused on continuing and extending the cost-management activities that have been underway and we believe the structural changes announced today will serve the organization well in its efforts to become more efficient and increase revenue.
The fact is that our options are limited as we examine how we will pay the costs of maintaining the nation's expanding universal service network. It has been abundantly clear to the Governors for some time that it would be necessary to file for a rate increase and we have been debating when that filing with the Independent Postal Rate Commission should occur.
Regrettably, we must work through an encumbering, 30-year-old statutory rate process that has us initiating the rates process over a year in advance of when new rates might be implemented. Some of the issues we must consider include today's weaknesses in the economy and the resulting drop in consumer confidence and mail volume growth. At the same time, we must acknowledge that Wall Street's decline and a soft real-estate market do not signal a rapid economic turnaround.
Beyond the general economic situation, the outcome of the collective bargaining process with four unions representing 700,000 postal employees remains uncertain. For three of those unions, the decision on what our employees will earn has been placed in the hands of outside arbitrators. We recently began negotiations with the fourth union.
The Governors voted unanimously to file a rate case immediately and, further, requested an expeditious review by the Postal Rate Commission. We do this because we have a responsibility to preserving the financial viability of the Postal Service. And we do it with the understanding that a significant reversal in the general economy may result in our action being no more than simple prudence - a hedge against a longer-term economic slump.
We fully recognize the concerns of our customers regarding a potential rate increase by next fall. However, speculation that the Postal Service would seek a rate increase in the range of ten to fifteen percent is incorrect. Management's continuing actions in reducing costs will allow us to file for an overall rate case of just under nine percent. However, I think it is significant to note that the eight-cent stamp of 1971 would cost more than the 34 cents we charge today when adjusted for inflation. And the increase we are asking for today will continue that favorable trend.
We have considered the suggestion of many customers and mailing industry groups that we implement phased rates. While this is certainly a creative and innovative approach to a rate increase, our review of the proposal and our very serious financial situation have convinced us that, as a practical matter, we would be unable to implement the new rates in this manner. However, it is certainly something that will be considered in connection with future filings.
Looking ahead, we do not intend to mortgage the future of the America's Postal Service. While our present cash shortage has required us to freeze virtually all construction of new post offices, we cannot continue this course indefinitely without inflicting irreparable harm on these key elements of our national service network.
We cannot, in good conscience, permit this organization to experience a fourth consecutive year of red ink. As the Postmaster General noted, mail is a vital element of the nation's communications system. That will be the case for many years to come. We must take the necessary actions today to preserve our ability to protect universal service to the American people long into the future.
In conclusion, this filing is a response to conditions as they exist today, both in the Postal Service and in the economy as a whole. Because of the inordinate length of this process, we must take steps now to prepare ourselves for what may happen over the next ten to twelve months.
While there have been variables among different rate filings over the last three decades, overall, stamp increases have tracked the consumer price index. Following this process, the American consumer can expect the price of a First-Class stamp to rise by only three cents if the Postal Rate Commission's recommended decision reflects our request.
Thank you.
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